Advisor: the grass isn't greener in the East-side

by WP13 May 2014

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Advisor: the grass isn't greener in the East-side

By: Jeff Sanford

Canadian advisors may long for the amazing growth rates of the burgeoning Chinese wealth management industry. But the stable, steady growth of the mature, regulated Canadian economy has an upside says one Canadian wealth expert.

A Reuters report this morning highlights comments from a Chinese central bank official worried about the amazing growth in the Chinese wealth management industry.

The official, Liu Shiyu, suggested China should reorganize its wealth management industry as it is “unduly raising funding costs and encouraging savers to behave like gamblers by chasing after lucrative short-term returns.”

The comments seem apt: The Chinese wealth management industry now manages an astonishing $1.8 trillion, is growing at an amazing annual rate of 65 per cent. Funds are said to be lending to companies at 14 per cent, while offering 8 per cent on funds, which represents an amazing profit.

Not quite says Bryan Kelly, the proprietor of the investor-focused website White Top Investor. He points out, appropriately, that while the Canadian wealth management sector may be a little less “exuberant” (to use Alan Greenspan’s famous phrase), there is something very comforting about manageable growth.

“I don't know that it is a classic bubble, but those numbers are most definitely unsustainable. I expect the Chinese experience will end with an implosion and tears,” says Kelly. “Unlike here, where financial perpetrators experience few significant consequences, I expect, in China, perpetrators will see jail or worse.”

“Like all gold rushes, a few may get rich, most end up toiling in the mud,” he says.

That is, the new Wild West, or East, may provide some short-term thrills, but unmanageable growth is no way to make a living over the long-term.